ATLANTA—When hotel CEOs talk, people listen, but it doesn’t mean everything they say is beyond reproach. The President’s Panel, during the Hunter Hotel Conference, held last week at the Marriott Marquis, is at its best when discussion focuses on the trends and storylines impacting the hospitality industry, and at its most vexing when it becomes a marketing campaign—a game of anything your brand can do mine can do better.
That’s how it goes.
So when Geoff Ballotti, the CEO of Wyndham Hotel Group, pulled out pairs of La Quinta-branded socks, and began passing them around to fellow panelists, you knew what was to come.
Ballotti touted Wyndham’s 21st brand, La Quinta, which it announced the $1.95-billion acquisition of in January, with the deal expected to close in the second quarter of 2018.
“La Quinta is a brand franchisees love,” Ballotti said, citing that 85 percent of La Quinta franchisees score four stars or higher on TripAdvisor. He added that La Quinta’s Del Sol prototype punched the brand up to more of an upscale play than midscale. “Scale has never been more important,” he continued, telling the audience that Wyndham now had more than 9,000 hotels. “Small companies can’t do it on their own anymore.”
Ballotti’s fellow CEOs on stage plugged their brands and business, too, including Pat Pacious, CEO of Choice Hotels International. “We have 12 brands and one in every 10 hotels is a Choice hotel,” he said, adding that Choice now composes some 6,800 hotels.
“We look for brands owners want to build,” Pacious continued, touting its recent acquisition of WoodSpring Hotel, an economy-minded extended-stay product that Pacious said fills a space now in its portfolio. There are currently around 400 WoodSpring hotels, and Pacious has said that Choice can grow that as much as three times over the next few years. “The cash-on-cash returns are significant,” he said. Beyond WoodSpring, Pacious touted its upscale Cambria brand, which he called “still fairly new with,” even though it was introduced to the market back in 2005. It is now gaining forward momentum, Pacious said, with around 120 Cambria hotels open or in the pipeline. In the soft brand space, Choice has some 200 Ascend Collection hotels open and Pacious expects to open 50 more this year.
It’s been a time of change for IHG, which has included a new CEO, Keith Barr, and a new brand, Regent Hotels, which the company announced it had acquired earlier this month. Like Wyndham, Elie Maalouf, IHG’s CEO of the Americas, is a proponent of scale, but not for the sake of just getting bigger. Last year, the company crossed the 1-million-room mark, and is heavy into expanding its brands, including its newest organic entry, Avid Hotels, in the highly competitive midscale space.
With regard to scale, “you have to get big where it matters,” Maalouf said. “We want muscle, especially in upscale and luxury.” (Regent is that brawn, he said.) Maalouf added that in the limited-service space, IHG was better positioned to add new brands on its own, like Avid, rather than making an acquisition.
A late addition to the panel was David Marvin, founder and president of Legacy Ventures, who was pinch-hitting for Ross Bierkan, president and CEO of RLJ Lodging Trust, who couldn’t make the conference due to weather. Legacy, which has nine hotels in its portfolio, the bulk of which are in Atlanta, began investing in and developing hotels back when the Summer Olympics came to Atlanta, in 1996.
Because Legacy is an owner/operator, Marvin came into the discussion with a vantage point distinct from his fellow panelists. According to Marvin, “Hotels are the most under-demolished real estate classes out there. Fresh ideas and assets make sense.”
He went on to take brands to task for what he perceived to be expenditures with no return on investment. “It’s insidious when brands make owners spend money on certain amenities and designs that are unproven and don’t have a ROI,” he said. “New brands are a good idea, but there has to be some constraint and thoughtfulness. Our industry isn’t disciplined enough.”
Hotel CEOs are understandably champions of their brands; in that way, they are their biggest marketers. Still, even they recognize a goldbrick. Choice, for instance, has 12 brands currently, but “once you get too many brands, someone moves down the pecking board,” Pacious said. “There is a point of diminishing returns. Brands must be relevant.”
Pacious has twice now, at the Hunter Conference and at the International Hotel Investment Forum, stated that hotel companies that have 30 brands or so are essentially OTAs at that point. The statement is a not so slight allusion to Marriott International.
IHG’s Maalouf is not as demonstrative, but believes that if you create a new brand, or buy one, you better be certain they are a value-add. “You have to be able to dedicate the right discipline and energy to each brand,” he said.
Maalouf is not a hotel industry lifer, having held executive positions with HMSHost Corp. and McKinsey & Co. This is his third year at IHG, and when he reflects back on other industries, “None worry about too many brands,” he said. (Preceding the President’s Panel was a keynote by the chairman and former CEO of The Coca-Cola Company, which has more than 500 brands.)
“If we create relevant brands that are remunerative to owners, they will succeed,” Maalouf continued. “If a brand grows to scale, it must mean it works.”
His point was echoed by Wyndham’s Ballotti, who reiterated that the point of brands is for them to be relevant to guests and make money for owners. In a moment of frankness, Ballotti revealed perhaps the truest reason owners pay hotel companies the fees they do. It has nothing to do with launching new brands and everything to do with exposure. “Ownership pays us for distribution, and to negotiate costs with third parties," he said.
“We help drive down costs and increase contribution. We say no to many brands that might trip over our other brands.”
Added Maalouf, “It’s a game of inches now. All bookings you can move to direct help your bottom line.”
On Their Mind
For owners, keeping expenses at bay is another concern and a more frequent killjoy in light of ballooning labor and CapEx costs.
While RevPAR only speaks to the top-line, Legacy’s Marvin figures that 2-percent year-over-year RevPAR growth is just enough to keep up with the burgeoning costs. That, however, keeps margins tight.
How it delivers that, he said, is through guest experience. “You have to deliver that,” he said.
Delivering a strong guest experience is vital for midscale hotels today—ever more so as aging baby boomers exit the workforce. Choice’s Pacious cited the number 10,000 as the amount of boomers retiring every day. “Their discretionary income is going to be spent on experiences, hotels,” he said. “And much of that spending will be in midscale because they don’t have those corporate cards anymore.”
Or, maybe the most intrepid of boomer will try Airbnb—and with the home-sharing site in name now adding hotels, it could become an even more omnipresent booking option. Most hotel CEOs acknowledge the meteoric rise of Airbnb (“They are attracting more and different people for longer stays,” said Pacious; “They have built a brand name,” said Maalouf), though still aren’t buying into it as an existential threat.
“They aren’t providing certainty,” Pacious said, which is our “wakeup call to stay on top of providing guests what they want. Airbnb is a lesson for all of us.”
To Maalouf, there’s Airbnb 1.0 and then, "What’s next?" he asked. Airbnb is becoming more nuanced, adding hotels, experiences, verified homes and quality control, and a host of other initiatives to become not only a full-fledged travel company but a threat to Expedia and Booking.com. “Airbnb,” Maalouf said, “is not invested all the way; they aren’t making commitments to owners to deliver results. We have to make sure we are a differentiated experience.”
According to Marvin, Airbnb must be held to the same standards as traditional hotels, but he is convinced Airbnb is a force to be reckoned with. “As you think about developing new hotels, you have to think about your supply-and-demand analysis,” he said.